by Kristin Yokomoto
Since 2011, post-World War II baby boomers have been turning age sixty-five at the rate of 10,000 per day, which will continue until 2030. According to the U.S. Department of Commerce Economics and Statistics Administration, approximately 18% of the nation’s population will then be sixty-five years or older. With nearly 4.8 million senior citizens, California currently has more seniors than any other state; by 2030, approximately one in five Californians will be age sixty-five or older. As our senior population grows, so do their legal rights and needs which include, for example, understanding social security benefits and complex retirement laws, establishing and amending living trusts, managing the rising costs of long-term care, and preventing and defending physical and financial elder abuse.
With age comes the increased chances of dementia, Alzheimer’s disease, and other conditions that can affect one’s legal mental capacity and ability to enter into contracts, trusts, and other agreements. According to the Alzheimer’s Association, by 2030 the nation is estimated to realize a 70% increase in the Alzheimer’s disease, with an estimated 7.7 million people affected. In California, between 2009 and 2030, it is estimated that the number of Alzheimer’s disease cases will double from 588,208 to over 1.1 million, with one in eight people over the age of fifty-five being affected, plus another one in six being affected by dementia. These statistics, along with gains in life expectancy, mean that lawyers will be increasingly confronted with the challenges of determining and dealing with diminished legal mental capacity issues with respect to clients, witnesses, and other lawyers. This article will focus on the lawyer’s dilemma of dealing with incapacitated clients, with a focus on estate planning clients.
Capacity is not easy to assess. Capacity can be temporary, situational, reversible, and task specific. Legal mental capacity is different from mental or physical capacity. Cal. Prob. Code §§ 810(b) and 811(d) (Deering 2017). A client with dementia or Alzheimer’s disease may still have sufficient legal mental capacity depending upon the severity of the client’s mental state and the nature of the proposed services. In general, lawyers are not trained to ascertain mental capacity and there is no single indicator of diminished legal mental capacity. Accordingly, a lawyer’s awareness of capacity issues, and the ability to spot red flags, can assist a lawyer to better help, or decline to help, a prospective client, while protecting his or her law practice from claims of negligence by third party conservators or beneficiaries.
Age may be an initial indicator that a prospective client, or an existing client who requests additional services, may have a capacity issue. However, many people over the age of eighty still have capacity and alternatively, someone under the age of fifty may not. During the initial consultation, the lawyer may sense cognitive, emotional or behavioral symptoms, such as memory loss, anxiety or delusions, which could be indicators of diminished capacity. For a useful Capacity Worksheet for Lawyers, see the American Bar Association/American Psychological Association. Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers, Am. Psychol. Ass’n, 23-26 (2005), http://www.apa.org/pi/aging/resources/guides/diminished-capacity.pdf. While a lawyer may not feel qualified to ascertain capacity, lawyers, in reality, constantly evaluate a potential client’s state of mind and ability to understand, thereby making at least a preliminary judgment about capacity.
Standards of Capacity
There are different standards of capacity required depending upon the services requested by the prospective client. For example, different standards may apply for a person to contract, convey property, become married or divorced, or establish or amend a will or trust. A broad rule in California provides that a person entirely without understanding has no power to make a contract of any kind and that such contract made by a person without sound mind, absent a conservatorship, is subject to rescission. Cal. Civ. Code §§ 38-40 (Deering 2017).
To enter into a valid contract, an individual must be able to have understood the particular transaction at issue, which means that the level of capacity required depends upon the complexity of the decision involved. In general, an individual will be determined to lack capacity if he or she cannot appreciate the rights, duties, consequences, risks, and benefits involved in the decision. Cal. Prob. Code § 812 (Deering 2017). Because California law requires that certain contingency fee arrangements and those which will exceed $1,000 in attorneys’ fees must be in writing, a prospective client must be able to understand the scope of services, payment terms, and other provisions in the engagement letter before proceeding with representation. Cal. Bus. & Prof. Code §§ 6147.5(b) and 6148(a) (Deering 2017).
For an individual to execute a will or trust, or changes thereto, which is simple in nature, he or she must have “testamentary capacity” and be able to (1) understand the nature of the testamentary act, (2) the nature of the individual’s property, and
(3) his or her relations to the persons who have claims upon his bounty and whose interests are affected by the instrument. Cal. Prob. Code § 6100.5(a)(1) (Deering 2017). For example, a father seeking to establish a trust which would provide that his sole asset, a home, be distributed to two of his three children would need to possess the ability to understand that the lawyer prepares trusts, that he owns a home, that he has three children, and the reasons for disinheriting one of them.
For trusts, or trust amendments which are not simple in nature, but complex, the individual must have “contractual capacity” and be able to communicate, understand and appreciate (1) the rights, duties and responsibilities created or affected by his or her decision, (2) the probable consequences of the decision, and (3) the significant risks of, benefits of, and reasonable alternatives to the decision. Cal. Prob. Code § 812 (Deering 2017). For example, a father who wishes to give his home, investment accounts and business interests to his three children, one of which has special needs and received government benefits, in trust for their lifetimes to protect against spendthrifts and creditors, would need to exhibit a higher level of cognitive and other abilities before proceeding with the representation. In general, in order for a person to establish a complex trust, or trust amendment, he or she would need to possess the ability to communicate the decision and understand the rights and duties related to the decision, probable consequences for the decision-maker, persons affected by the decision and the significant risks, benefits, and reasonable alternatives involved in the decision.
Often in estate planning, there will be an external factor which will alert the lawyer that capacity may be an issue. For example, it is not uncommon for an adult child to call the lawyer and explain that an aging parent wants to make a change to his or her will or trust. The child may then further explain that the parent has hearing or speech difficulties. This scenario often plays out with the child’s driving the parent to the consultation and expecting to be present in the meeting so that he or she can explain the parent’s desires to the lawyer. At this point, the lawyer is forewarned that issues of capacity may come into play. The lawyer would also need to disclose any potential conflicts to the client due to the presence of a third party and obtain the client’s informed written consent before proceeding. Cal. Rules Prof’l Conduct, Rule 3-310. While prudent to require the child to remain in the lobby, there may be times where the child and parent are long-time clients of the estate planning law firm and the lawyer either does not think about it or does not want to offend the child. The concern becomes greater if the child explains to the lawyer that his or her parent wants to establish a will or trust, or changes thereto, to leave all or most of the parent’s assets to him or her, and none or less than an equal share to his or her siblings. The lawyer will want to follow best practices when so many red flags are present, including consideration of potential undue influence.
Along with capacity issues comes the prospect of undue influence. California recognizes that individuals over sixty-five years old who have difficulty handling their financial resources or resisting fraud or undue influence, or those younger than sixty-four years old who have significant difficulty handing such affairs, could be vulnerable to financial abuse by a lawyer, fiduciary, or caretaker. In general, gifts to lawyers, fiduciaries, or caretakers are presumed to be the product of fraud or undue influence, unless there is an independent certificate of review by an independent lawyer, or unless they fall into one of the described exceptions. Cal. Prob. Code § 21380 (Deering 2017). This law shifts the burden of proof and required level of evidence. Lawyers who fail to assess whether an independent certificate is necessary, or fail to obtain the certificate, could find themselves subject to a claim against them by the subject lawyer, fiduciary, or caretaker who does not receive their intended gift.
In California, our utmost respect for a client’s confidences requires the lawyer “[t]o maintain inviolate the confidence, at every peril to himself or herself to preserve the secrets, of his or her client.” Cal. Bus. & Prof. Code § 6068(e)(1) (Deering 2017). An exception to this rule provides that lawyers may disclose confidential client information to prevent a life-threatening criminal act. Cal. Bus. & Prof. Code § 6068(e)(2) (Deering 2017). However, lawyers are not currently permitted to take any protective actions on behalf of vulnerable clients to prevent financial or physical harm from being done upon them. In fact, if a California lawyer petitioned the court to have a conservator appointed to protect a client with diminished capacity, this would likely violate a lawyer’s duties of loyalty and confidentiality to a client. See Cal. St. B., Formal Op. 112 (1989) (discussing instituting conservatorship proceedings on an incompetent client’s behalf).
In contrast, other states have adopted some version of the American Bar Association Model Rules, Rule 1.14, which expressly permits lawyers to seek protective action on behalf of an incapacitated client, such as filing for a conservatorship. In response to this growing number of capacity cases, the Commission for the Revision of the Rules of Professional Conduct of the State Bar of California recently proposed that a version of Rule 1.14 be enacted in California which would allow a lawyer to seek a conservator for a client with diminished capacity. However, while the proposed California rule allows a lawyer to, among other things, seek a conservator, it also requires the client’s advance consent. This would mean that the client must have given his or her prior consent to the lawyer seeking a conservator, or possess the minimum level of capacity to provide such consent. While psychological studies may show that an individual who lacks contractual capacity can have the capacity to consent to a protective action, the proposed new rule, if adopted by the California Supreme Court, may not provide much actual practical benefit.
Planning for Incapacity
An individual can proactively plan for incapacity by creating a trust and nominating a successor trustee. A part of the estate plan would be a statutory, or custom-drafted, durable power of attorney and a statutory advanced health care directive. Cal. Prob. Code § 4701 (Deering 2017). These documents allow a person to appoint a family member, friend, or other person to manage a person’s finances and make health care decisions for a person in the future event of incapacity. This would avoid the need to later petition the court for a conservator which would be costly, time consuming, and public. Depending upon the provisions in the durable power of attorney, this may allow a lawyer to bring and settle causes of action, as well as amend living trust provisions.
Third Party Liability
The most significant dilemma and risk is to the lawyer who now needs to give deliberate attention to capacity issues. The failure of a lawyer to do so has been at the core of third party beneficiary lawsuits against the drafting lawyer. To date, the courts have been reluctant to determine liability because of the lack of privity of contract, thereby holding that the lawyer does not have a duty to beneficiaries under a will to determine the testamentary capacity of a client seeking to amend an estate plan. Moore v. Anderson, 109 Cal. App. 4th 1287, 1298 (2003). However, the principle of privity has been eroding over the years.
As people live longer and cases of dementia and Alzheimer’s disease increase, lawyers will be increasingly faced with the challenge of assessing capacity. There are situations where incapacity is obvious and the lawyer’s decision to decline a new representation or withdraw from an existing representation is simple. However, many cases are unclear, and the unaware lawyer may miss signs of incapacity or mistakenly conclude incapacity. Watching for red flags, observing a prospective client’s behavior, maintaining independent judgment, and applying the different capacity standards can help a lawyer to help elderly clients while also protecting his or her law practice from claims for failure to assess capacity.
Kristin Yokomoto is a partner at Albrecht & Barney in Irvine, where she practices estate and business planning, trust administration, and probate. She is the Chair of STEP Orange County, a member of STEP Special Interest Group Committee – Mental capacity, and a member of the OCBA Professionalism & Ethics Committee. Kristin may be reached at email@example.com.